Mergers & acquisitions

Siemens Bolsters Mfg. Ops With Mentor Buy

Siemens will buy Mentor Graphics, which specializes in computer-aided engineering (CAE) tools, for $4.5 billion.

Siemens AG (NYSE: SI; Frankfurt: SIE) intends to use Mentor Graphics Corp. to deepen its manufacturing expertise in the semiconductor industry. Siemens has long been involved with semiconductor design and production, though it's been coming at the area from an oblique angle.

In 2007, Siemens first started buying into product lifecycle management (PLM) technologies, and it has been accreting expertise in the area ever since. PLM is an outgrowth of industrial computer aided design and manufacturing. Early on, it seemed that CAD/CAM and CAE might be a natural fit, and conceptually they are, but CAE was simply too esoterically specific for the two disciplines to be comfortably integrated.

That's been changing in recent years. ICs have become more sophisticated, and IC design is now such a complicated and -- more to the point, long -- process that it is critical for some OEMs to be able to start designing systems around new chips before the chips exist in any manifest way.

So Mentor, along with rivals Cadence Design Systems Inc. and Synopsys Inc. (Nasdaq: SNPS), have been developing extraordinarily sophisticated tools that produce and handle data that by necessity must cross the threshold from the chip design process to the system design process, all the while addressing all the test and verification issues that arise from those crossovers. In short, CAE has been moving toward industrial PLM.

At the same time, PLM has been moving toward incorporating CAE. Many industries, including energy, automotive and communications to name a few, are now looking to manage their systems from the chip design process to system maintenance once out in the field.

Siemens' acquisition of Mentor is a natural culmination of these trends. Siemens said Mentor will become part of the PLM software business of its Digital Factory (DF) division.

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So there is plenty of reason to believe the two operations will have synergy in the dictionary sense, though the only synergies Siemens explicitly labeled as such it expects to achieve "through a combination of revenue growth and anticipated margin expansion." That's the financial definition of "synergy," which usually means layoffs in the management and support ranks.

Siemens will pay $37.25 per share in cash, a 21% premium to Mentor’s closing price on the last trading day prior to the announcement. Closing of the transaction is expected sometime in the second quarter of 2017.

Mentor and Siemens pointed out that shareholder Elliott Management has "committed to support the transaction," as if Elliott Management, a dissident investor group which bought an 8% stake in Mentor in September and has been agitating for Mentor to sell itself ever since, might have changed its mind about the whole thing.

Mentor fended off an acquisition attempt by Cadence several years ago, and then also a subsequent attempt by dissident investor Carl Icahn to force a sale. But perhaps now Mentor was finally ready to be sold. Longtime CEO Wally Rhines is nearing 70 and there is no clear heir apparent.

In a statement, Rhines said, "Combining Mentor's technology leadership and deep customer relationships with Siemens’ global scale and resources will better enable us to serve the growing needs of our customers, and unlock additional significant opportunities for our employees. Siemens is an ideal partner with financial depth and stability, and their resources and additional investment will allow us to innovate even faster and accelerate our vision of creating top-to-bottom automated design solutions for electronic systems."

— Brian Santo, Senior Editor, Components, T&M, Light Reading

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